VersaCold's letter to Ralph Klein

Hon. Ralph Klein - Premier of Alberta
Legislature Office
#307, 10800 97 Avenue
Edmonton, Alberta
T5K 2B6
Phone: (780) 427-2251

RE: Deep concerns with projected 2001 Alberta Deregulated Electricity Prices.

Premier Klein:

The Government of Alberta must step in and implement measures to regain control over the very high and volatile electricity prices in the Alberta Power Pool. They are simply to high to conduct successful business in the Food & Beverage Industry here in Alberta. There is no way that Versacold can continue to do business in Alberta if we must buy electricity at $130 / MWH + Transportation costs come January 1, 2001. That's close to $150 / MWH delivered. The highest of any province in Canada. Versacold is a national company with 23 facilities spread across the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and Washington State in the United States. Our largest concentration of facilities is in British Columbia and Alberta, with 7 in each province. We operate 3 facilities in Edmonton, 3 in facilities in Calgary, and 1 facility in Lethbridge here in Alberta.

Premier Klein, we've always paid between 4.5 cents/kWh and 5.5 cents/kWh delivered, for electricity here in Alberta. That has always been competitive and even slightly lower than most other Canadian provinces. We have a load in Alberta of about 7.5 MW and consume approximately 45,000 MWh annually, which cost Versacold $2.7 million/year in the regulated electricity world. Electricity accounts for 95% of our energy costs in Alberta. It is by far our largest operating cost as a company. Being a cold storage / freezer warehousing company, refrigeration is our prime business. Refrigeration is a very electrically intensive process. We have always endeavored to reduce energy use within our company. Versacold was a finalist at the 1999 Canadian National Energy Efficiency Awards as recognition of our efforts. We continue to be published in Canadian government articles regularly for our energy efficiency achievements.

Premier Klein, even the most electrically efficient companies will be financially damaged by the 2001 deregulated electricity prices. Right now, the cheapest retail contract we as a company can enter into for 2001 electricity supply is at 12 cents/kWh to 15 cents/kWh delivered. Most retailers are not even willing to make an offer on Versacold's electricity load. There aren't that many electricity retailers out there in Alberta marketplace to begin with. Thus there is no real customer choice. The governments promise that electricity deregulation would create greater efficiencies and lower costs in the Alberta Electricity Industry, which in turn would be passed onto end use customers in the form of lower electricity prices, was obviously a false one. Electricity prices are skyrocketing.

With that in mind, in 2001 Versacold will see it's electricity prices in Alberta jump from about 5 cents/kWh up to 12 cents/kWh. This is a conservative estimate. This will see our annual bill in Alberta alone, go from $2.7 million up to $5.5 million. An increase of $2.8 million next year that comes directly off Versacold's bottom line. This equates to a rounded net increase of 136%. That is impossible to stomach as a company. Being a national company with all our major competitors having no freezer facilities in Alberta, it is impossible for us to pass these huge cost increases onto our customers, as they will simply choose to no longer do business with Versacold in Alberta, and will take their business outside the Province of Alberta to our competitors. Secondly, Versacold as a company can ill afford to absorb such huge cost increases, we will go out of business in the Province of Alberta. Thus options for Versacold would include moving all Alberta operations and revenue opportunities to other Canadian provinces where electricity is much, much cheaper.

Electricity prices for Versacold in other Canadian provinces are as follows:

BC ---- 4.5 cents/kWh
Saskatchewan ---- 6.6 cents/kWh
Manitoba ---- 3.7 cents/kWh
Quebec ---- 5.5 cents/kWh

All are much, much lower than any price Versacold could ever hope to pay for electricity under deregulation here in Alberta.

Premier Klein, the so-called "Alberta Advantage" no longer exists for companies in the Food, Beverage, and Warehousing industry sectors here in Alberta. A business move to another province for Versacold based on Alberta electricity prices seems very logical at this time. The only "Alberta Advantage" that now exists for business in Alberta is if you belong to the Oil and Gas sector, Electrical Utility sector, or service industries that support these sectors. Electricity deregulation will force many other major sectors of the Alberta economy to re-evaluate the business climate in which they do business and force them to vacate Alberta and set up shop in Canadian provinces where electricity is cheaper, namely British Columbia, Manitoba, Saskatchewan, and Quebec.

The Government of Alberta must act strongly here if they want to prevent a massive exit of industry from the province. Not to mention the exit of people, due to the creation of tremendous inflationary pressures by these very, very, high electricity prices on all goods and services produced and sold here in the Province of Alberta, thus driving up the cost of living for every Albertan.

Regards,
Rodney White, CET
Versacold Engineering Services